Operations Data (AQA AS Business): Revision Note

Labour productivity

• Labour productivity measures output per worker during a specified period of time

• It is expressed as a number of units and calculated using the formula:

  $\mathrm{Labour}\mathrm{productivity}=\frac{\mathrm{Output}}{\mathrm{Number}\mathrm{of}\mathrm{workers}}$

• Businesses aim to increase the level of labour productivity to improve competitiveness

The link between high labour productivity and competitive edge

Unit costs

• The unit cost is the average cost of producing one unit of output

• It is calculated using the formula below and expressed in £s:

$\mathrm{Unit}\mathrm{cost}=\frac{\mathrm{Total}\mathrm{cost}}{\mathrm{Total}\mathrm{output}}$

• Unit costs usually fall as output increases, as fixed costs are spread across more units of output

Capacity

• Capacity refers to the volume of products that a business is capable of producing at a given time with its available resources

Factors that determine capacity

1. Buildings and space

   • The size of a factory, warehouse or kitchen limits how many machines or workstations can fit

     • E.g. a small bakery cannot bake as many loaves as a large food factory

2. Equipment and technology

   • Faster or more automated machines raise capacity, while old or basic equipment keeps it low

     • E.g. a car factory with lots of robots can assemble many cars per hour

3. Number and skills of workers

   • Sufficient trained staff must be on each production shift

   • Staff shortages or a lack of training reduces the safe output level

4. Supplier reliability

   • If raw materials or components arrive late or in short supply, production cannot run at full speed, cutting capacity

5. Available finance

   • Tight budgets restrict how much capacity can be added

   • Money is needed to buy extra space, machines or staff time

6. Expected demand

   • Businesses arrange the level of capacity to produce what they think they can sell

   • A business does not want to pay for facilities that will sit idle most of the year

7. Seasonal factors

   • Some industries (e.g. ice‑cream or toy makers) create temporary or flexible capacity for their peak season only

Capacity utilisation

• Capacity utilisation measures how effectively a business uses its assets to produce output

• It compares current output to the maximum possible output a business can produce using all of its assets

• Capacity utilisation is calculated using the following formula and expressed as a percentage:

$\mathrm{Capacity}\mathrm{utilisation}=\frac{\mathrm{Current}\mathrm{output}}{\mathrm{Maximum}\mathrm{possible}\mathrm{output}}\times 100$

The implications of under- and over-capacity utilisation

Under-utilisation

• Low-capacity utilisation means resources are being underused

  • This is likely to increase unit costs because fixed costs are spread over fewer units of output

  • Workers are under-deployed, leading to fears of redundancy

• Operating under capacity provides flexibility

  • Workers are freed up to complete maintenance tasks

  • The business can respond to sudden increases in demand

Over-utilisation

•  High-capacity utilisation may mean flexibility to respond to new orders is lost

  • Staff are under pressure to increase output

  • Overworked staff may leave, increasing staff turnover 

  • Machinery operates at its limit and is more prone to breakdowns, which disrupts production

• High-capacity utilisation minimises unit costs and increases competitiveness

  • Busy workers feel secure in their employment 

  • A busy business is likely to be well-thought-of and attract customers who are willing to wait for delivery of products